Payments News Digest for March 2020
AQN Payments Monthly is a regular review of news in the payments space, along with AQN’s perspective on how that news impacts you and your business. Like what you see? Subscribe below!
Feb 4th - Visa and other payment networks plan biggest interchange modifications in the last 10 years. (Source: Bloomberg)
AQN's Take - The upcoming shakeup this April will have many winners and losers within both the merchant and issuing space. One of the biggest winners are going to be grocers as it has leaked that Visa will be substantially cutting the credit grocery interchange rate. On the issuing side, AQN expects the largest benefits to accrue to the issuers of premium cards with heavy spenders as the networks get pressured to push up economics on premium network products (i.e. Visa Signature Preferred) to support higher issuing rewards costs. AQN will be issuing an in-depth analysis on the changes after the networks release their public rate tables to confirm its suspicions.
Feb 14th - Restaurant payments platform Toast raised $400M at a $4.9B valuation to expand its offerings and further fuel growth. (Source: WSJ)
AQN's Take - As the payments race continues, Toast is a major winner with a fresh round of financing, which increases its valuation by 81% in less than a year. AQN sees the trend of the 'hub and spoke model' of payments processing as the core business with follow up tangential offerings, such as payroll services, becoming more prevalent in the market as more industry specific players mature. The niche approach often builds barriers to exit for many of the onboarded merchants as they become ingrained deeper in the business thus driving more stickiness / less attrition than both traditional merchant acquiring models and similar industry agnostic approaches that players such as Square employ.
Feb 21st - United Airlines renews co-brand credit card agreement with Visa and JPMorgan through 2029. (Source: Bloomberg)
AQN's Take - United renewing with Visa doesn't come as a shock to AQN as the other 2 large international airlines, Delta and American, have renewed their deals with AMEX and Mastercard respectively in recent years. With co-brand revenues making up a larger portion of airline profitability, specifically within the 'big 3', this renewal is a definite win for United's bottom-line.
Feb 21st - Shopify join's Facebook's Libra Association as a member after a slew of defections. (Source: CNBC)
AQN's Take - While Libra has had a lot of media attention lately amidst losing a large portion of their founding members, this move by Shopify is seen as a great sign for Libra overall. Given Shopify's growth in payments processing ($25.7B in 2019 vs $16.6B in 2018) driven by their expanding geographical reach this partnership makes perfect sense from a business perspective as they look to further increase the margin on their payments business.
Feb 25th - Mastercard names new CEO, Michael Miebach, who will take over from Ajay Banga Jan 1st 2021. (Source: WSJ)
AQN's Take - As Mr. Miebach has served as Mastercards Chief Product Officer since 2016, this moves signals a definite focus on the continuation of business expansion beyond card based revenues. Mastercard has already been focusing and finding success in diversifying revenues, but AQN believes this move will re-double those efforts with a focus on technology based offerings. Given Visa has had similar focus in the recent past as can be most notably seen by their acquisition of Plaid in January, this move by Mastercard comes as no surprise. It will be interesting to follow the metamorphosis of the prevalent networks as they attempt to diversify beyond the payment rails and into full-fledged technology companies.